Reference no: EM13502473
The Dapper-Dons Partnership was formed ten years ago as a general partnership to custom tailor men's clothing. Dapper-Dons is located at 123 Flamingo Drive in City, ST, 54321. Bob Dapper manages the business and has 40% capital and profits interest. His address is 709 Brumby Way, City, ST, 54321. The partnership values its inventory using the cost method and did not change the method used during the current year. The partnership uses the accrual method of accounting. Because of its simplicity, the partnership is not subject to the partnership audit procedures.
The partnership has no foreign partners, no foreign transactions, no interests in foreign trusts, and no foreign financial accounts. This partnership is neither a tax shelter nor a publicly traded partnership. No changes in ownership of partnership interests occurred during the current year.
The partnership made cash distributions of $155,050 and $232,576 to Dapper and Dons, respectively, on December 30 of the current year. It made no other property distributions. Financial statements for the current year are presented in Tables C9-1 and C9-2.
Assume that Dapper-Dons' business qualifies as a U.S. production activity and that its qualified production activities income is $600,000. The partnership uses the small business simplified overall method for reporting these activities (see discussion for Line 13d of Schedules K and K-1 in the Form 1065 instructions). Prepare a current year partnership tax return for Dapper-Dons Partnership.
Table 9-1 Dapper Dons Partnership Income Statement for the 12 Month Ending December 31 of the Current Year
Sales $2,357,000
Returns and allowances (20,000)
$2,337,000
Beginning inventory (FIFO method) $200,050
Purchases 624,000
Labor 600,000
Supplies 42,000
Other costs(a) 12,000
Goods available for sale $1475, 050
Ending inventory(b) (146,000) (1,332,050)
Gross profit $1,004,950
Salaries for employees other than partners (w-2 wages) $51,000
Guaranteed payment for Dapper 85,000
Utilities expense 46,428
Depreciation (MACRS depreciation is $74,311)c 49,782
Automotive expense 12,085
Office supplies expense 4,420
Advertising expense 85,000
Bad debt expense 2,100
Interest expense (all trade-or business related) 45,000
Rent expense 7,400
Travel expense (meals cost $4,050 of this amount) 11,020
Repairs and maintenance expense 68,300
Accounting and legal expense 3,600
Charitable contributions (d) 16,400
Payroll taxes 5,180
Other taxes (all trade-or business related) 1,400
Total expenses 494,115
Operating profit $510,835
Other income and losses:
Gain on sale of AB stock(e) $18,000
Loss on sale if CD stock(f) (26,075)
SEC. 1231 gain on sale of land(g) 5,050
Interest on U.S Treasury bills for entire year (80,000 face amount) 2,000
Dividends from 15%-owned domestic corporation 11,000 9,975
Net income $520,810
(a) Additional SEC. 263A costs of $7,000 for the current year are included in other costs
(b) Ending inventory includes the appropriate SEC. 263A costs, and no further adjustment is needed to properly state cost of sales and inventories for tax purposes.
(c) The partnership reports a $10,000 positive AMT adjustment for properly placed in service after 1986. Dapper-Dons acquired and placed in service $40,000 of rehabilitation expenditures for a certified historical property this year. The appropriate MACRS depreciation on the rehabilitation expenditures already is included in the MACRS depreciation total.
(d) The partnership made all contributions in cash to qualifying charities
(e) The partnership purchased the AB stock as an investment two years ago on December 1 for $40,000 and sold it on June 14 of the current year for $58,000
(f) The partnership purchased the CD stock as an investment on February 15 of the current year for $100,000 and sold it on August 1 for $73,925
(g) The partnership use the land as a parking lot for the business. The partnership purchased the land four years ago on March 17 for $30,000 and sold it on August 15 of the current year for $35,050
Table 9-2 Dapper-Dons Partnership Balance Sheet for January 1 and December 31 of the Current Year Balance January 1 Balance December 31
Assets:
Cash $10,000 $40,000
Accounts receivable 72,600 150,100
Inventories 200,050 146,000
Marketable securities(a) 220,000 260,000
Building and equipment 374,600 465,000
Minus: Accumulated depreciation (160,484) (173,100)
Land 185,000 240,000
Total Assets $901,766 $1,128,000
Liabilities and equities:
Accounts payable $35,000 $46,000
Accrued salaries payable 14,000 18,000
Payroll taxes payable 3,416 7,106
Sales taxes payable 5,200 6,560
Mortgage and notes payable 44,000 52,000
(current maturities)
Long-term debt 210,000 275,000
Capital:
Dapper 236,060 289,334
Dons 354,090 434,000
Total liabilities and equities $901,766 $1,128,000
(a) Short-term investment